Bank of England Imposes Home Loan Restrictions

Bank of EnglandThe Bank of England could impose tougher conditions on home buyers to prevent future unsustainable credit bubbles, according to warnings of senior official.

Charles Bean, the Bank’s deputy governor, added that measures may be introduced to stop people taking out risky home loans.

This could take the form of “imposing maximum loan-to-value ratios in the mortgage market”, he said.

Mr. Bean said at the Jackson Hole Economic Policy Symposium in the US that there was a role for central banks in prescribing policy to cool credit booms that “appear to be getting out of hand”.

He said the problem is usually characterized by an “excessive shift” to riskier forms of lending.

Prior to the recent credit crunch, mortgage lenders edged towards greater loan-to-value ratios, sometimes offering up to 125% of the property’s value to customers.

Such mortgages were a part to blame for the resulting credit crunch, many experts believe.

To avoid a repeat, Mr. Bean suggests that the central bank could step in and force lenders to offer less risky mortgages, with greater upfront deposits.

He said: “There is the option of introducing direct constraints on the terms or availability of credit, for instance imposing maximum loan-to-value ratios in the mortgage market.”

Last month, the city regulator told mortgage lenders that there were no grounds to ban the sale of loans above certain loan-to-value ratios.

“People tell us such measures would be too blunt, and would not take enough account of individual circumstances,” a senior regulator told the Council of Mortgage Lenders.

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